The latest round of trade wars saw the US imposing tariffs on Chinese imports worth US$34 billion, with the Chinese government responding by imposing retaliatory tariffs on US imports of a similar amount.
President Trump had also threatened to impose tariffs on additional US$200 billion worth of Chinese imports and there could be counter measures by China if Trump make good on his threat.

But analysts at Lagos-based CSL Stockbrokers Limited, believe that, “heightening US-China tensions could have far-reaching implications on global energy markets.”
They added, “Indeed, considering China’s position as US’s second largest crude importer, retaliatory tariffs on US oil imports becomes more likely should the US continue to raise tariffs on Chinese imports.

“This would see Chinese refiners seeking to source a higher proportion of their inputs from non-US crude suppliers such as those from Russia and Saudi Arabia.
“In effect, we could see Brent Crude’s (global oil price benchmark) premium over West Texas Intermediate (WTI; US price benchmark) widen, with Brent breaking past US$80/bbl resistance levels,” they stated.

Meanwhile, in a separate report on their macroeconomic outlook, analysts at the investment bank noted that rising commodity prices would continue to benefit commodity exporters such as Russia, Brazil and Nigeria, will help to drive emerging markets growth.
They anticipated that oil prices were likely to remain in the US$70-75/bbl range over the remainder of the year.
“Although the OPEC/Russia production agreement may well be unwound before the end of the year, geopolitical risks (deteriorating US-Iran relations in particular) and robust demand from the US and EMs will keep prices supported.

“Our main views on FX and fixed income from the start of the year have played out, with depreciatory pressures on forex building and yields on treasury instruments declining, particularly at the short end of the curve.
“Looking ahead, we believe the CBN will have the willingness and the ability to hold the NAFEX rate at its current levels, despite fundamental and valuation depreciatory pressures.

“We hold a neutral view on fixed income from a duration perspective but believe that carry trade will remain attractive for foreign investors amid currency stability,” they added.
CSL Stockbrokers Limited maintained its 2018 real Gross Domestic Product growth forecast of three per cent despite the relatively disappointing first quarter 2018 data that was released by the National Bureau of Statistics.

“At this stage, we keep our baseline assumption at an average of two millionbpd in 2018 despite recent disruptions to production. A higher oil price environment will boost the sector and we forecast oil prices are likely to remain in the US$70-75/bbl range over the remainder of the year.
“Higher oil prices and adjustments to planned spending in the approved budget have led us to revise down our estimate for the budget deficit to N2.4 trillion from the N2.7 trillion that we expected at the start of the year.

“We retain the view that the authorities will rely more heavily on domestic markets for budget financing than the budget suggests.
“Inflation, which has declined more rapidly than we were expecting, is close to bottoming and we expect that the CBN will reduce the monetary policy rate by 100 basis points monetary policy rate to 13 per cent during the second half of the year,” it added.

They, noted however, that the CBN may not make any rate cuts given its concerns about inflationary pressures from fiscal spending.
“The current account surplus returned to near pre-oil crash levels in first quarter 2018 although this was largely due to weak import demand as opposed to a recovery in oil exports.

“We expect the surplus to decrease during the second half of the year as oil export revenues remain around current levels while import demand increases.
“We continue to expect investment inflows to slow relative to late 2017 and early 2018 and, in conjunction with a smaller current account surplus, this will lead to reserves plateauing or even declining slightly during the second half of the year.

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